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When looking at your farm’s finances, it is important to face critical business decisions head on before you discover there is not enough money to cover operating expenses. You need to determine which crops to grow, or which livestock enterprises to enter. You need to have a plan to market your crops. You need to have the right risk management tools in place, as well as sufficient insurance coverage, to protect your farm.

Beyond that, you also need to decide whether or not you can afford capital expenditures. Evaluate the pros and cons of purchasing versus leasing farm equipment. If you do not have enough capital to make a purchase, you will need to find farm financing.

Making these decisions will determine the future financial health of your farm. These decisions are never easy, and should only be made after taking a close look at your current circumstances and data-based financial projections.

We recently gave a presentation on Farm Financial Awareness at the North Carolina Farm Bureau’s “Helping Farm Families Through Hard Times” workshop, and we wanted to share information from the workshop with you here. In this post, you will learn what tools and financial models we recommend to our farm clients to fully understand your farm’s finances.

Create A Balance Sheet and Projections For Your Farm Finances

The first step toward farm financial awareness is creating a balance sheet of everything you own and everything you owe. You’ll want to create a spreadsheet listing out all of your farm’s debts and all of your farm’s assets. Accuracy and completeness are key. Any debts left unaccounted for could create further trouble down the road.

From there, you will want to create projections of future earnings and expenditures. Projections should be complete, accurate, and based on financial data from previous years. Look at your earnings from the last few years and develop a budget for expenditures.

When you are done,  your farm’s balance sheet and projections should indicate both your current and future financial situation. These tools may indicate whether your farm is profitable or operating at a loss. It can also provide a framework for the future of your farm’s operations, and reveal new opportunities to increase revenue or reduce expenses.

Check Your Farm Finance’s Vital Signs

In addition to balance sheets and projections, vital signs are also critical in understanding your farm’s finances. You want to take a look at the big picture. How healthy is your farm operation? How sustainable is your farm?

First look at liquidity. Is there sufficient cash available to you to pay your farm’s bills without disrupting the business? To determine whether or not you do, you need to know how much working capital your farm currently has on hand. To do this, simply divide your current assets by your current liabilities. A good working capital ratio is anywhere between 1.2 and 2.0.

Let’s take a look at an example:

Current Assets = $27,572

Current Liabilities = $19,964

Asset/Liabilities = $27,572/$19,964

Current Working Capital Ratio = 1.38

Current Working Capital = $7,608

Another vital sign you should pay attention to is your farm’s debt to asset ratio. In other words, what is the strength of your farm’s assets against its debt? This information can be found on your balance sheet. A good debt to asset ratio will tell you whether or not your farm’s operation is strong enough to weather a bad year.

Here is an example of how to calculate your farm’s debt to asset ratio:

Total Liabilities = $454,932

Total Business Assets = $622,103

Debt/Assets = $454,932/$622,103

Debt/Asset Ratio  = 73%

The final vital sign you should pay attention to is profitability and productivity. Look at your farm’s total revenue against crop expenses. Account for both fixed and variable expenses, and break it down by unit, acre and farm.

As you look at vital signs for your farm’s financial health, keep in mind the risks associated with operating the farm. Ask yourself, what would happen if interest rates increased? What if I experience a total crop loss? What if I get sick? Look for vulnerabilities and weaknesses in your farm and create a strategy to proactively deal with worst case scenarios.

Be Proactive And Talk To Your Lenders and Farm Attorney

If you realize that your farm’s finances are not in good health, you should take steps to improve your situation immediately. Talk to your lenders, especially when you realize you may not be able to make a payment. And, if you have questions about how to deal with debt, you can speak with a farm bankruptcy attorney. You may not need bankruptcy services yet, but an attorney experienced with helping farms through tough financial situations can help you avoid defaulting on your loans, missing payments and leaving money on the table.

For more information, you can call our office at 919-934-7235 or email david@mills-law.com.

 

Farm Financial Resources:

Balance Sheet Tool:

https://www.ces.ncsu.edu/wp-content/uploads/2015/01/Farm-Balance-Sheet-Tool-1.xlsx

Cash Flow Tool:

https://www.ces.ncsu.edu/wp-content/uploads/2015/01/NCFS-Cash-Flow-Tool.xlsx

Farm Enterprise Budgets:

https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets

Your divorce has been finalized, marital assets have been divided and any remaining marital debt allocated to the respective spouse.  In a perfect world, you could shut the door on that chapter of your life and move on.  BUT life isn’t perfect and the assignment of debt repayment to your ex-spouse does not mean that you are free from owing the debt.

Debt Repayment

Your divorce settlement terms are between you and your spouse.  The settlement may have assigned the repayment of the debt to one spouse but that did not change the creditor’s right to collect a joint debt.  The creditor may address their collection efforts to both debtors until the debt is repaid, refinanced or resolved.

Credit Score

Marital debt will remain on credit reports for both spouses until the debt is resolved.  Late payments by the spouse that is assigned debt responsibility will be reflected on the credit reports of both individuals.

Are you struggling to pay creditors…tired of creditors calling…worried about your credit score?  Contact Mills Law to discuss your situation with one of our attorneys: (919)934-7235

Hurricane Florence has finally made her slow exit from North Carolina.  Unfortunately, in Hurricane Florence’s wake there is a path of destruction from the winds, relentless rain and floodwaters.  If you have returned home to flood damage, you may be overwhelmed by the task of cleaning up and starting over.  Fortunately, there are many resources that can guide you in safely cleaning up and securing your property.

Before you start the cleanup process, you need to make sure that your location is safe from utility, structural and environmental hazards.  Practice safety first:  be aware of your surroundings and wear protective clothing when addressing flood damaged property.   The NC State Extension office  NC Disaster factsheets are a great resource for things you should consider and do in the aftermath of Hurricane Florence.  Take pictures of the damage prior to clean up to assist with insurance claims and disaster relief assistance. If you are unable to stay in your home, contact FEMA by telephone 800-621-3362 (800-462-7585 TTY) or visit  Disaster Assistance for help.

Is your home covered by homeowners and/or flood insurance?  A trained professional can identify wind driven water damage vs. floodwater damage so contact your homeowner policy insurer as well and your flood insurance provider regarding damage.  Check out this article from CNBC regarding insurance claims for a general overview of the claim process.

Farmers should immediately contact their crop insurance agent.  Document by email or writing the instructions given to you by the agent and follow those instructions carefully.  Take photos of flooded fields and damaged crops before the water recedes.  Do not destroy any crops unless instructed to do so by your crop insurance agent or adjuster.  Contact your local extension office, or contact the attorneys at Mills Law, for more assistance.

Is your property eligible for FEMA Disaster Relief?  Call or contact FEMA Disaster Assistance to determine if your property is eligible for assistance.   Currently, Federal Disaster Assistance is available in the following North Carolina counties:  Beaufort, Bladen, Brunswick, Carteret, Columbus, Craven, Cumberland, Duplin, Harnett, Lenoir, Jones, New Hanover, Onslow, Pamlico, Pender, Robeson, Sampson, and Wayne.  Is your home outside of these counties?  Additional counties maybe added as damage assessments are completed so continue to check with FEMA for possible assistance.

Here is a quick list of Flood Recovery Resources*:

North Carolina State ExtensionNC Disaster Factsheets at:  https://ncdisaster.ces.ncsu.edu/disaster-factsheets/recovery/

FEMA Disaster Assistance:           Telephone number: 770-220-5273

https://www.fema.gov/individual-disaster-assistance

American Red Cross:                      Telephone number:  800-733-2767

Search for Family Member:  https://safeandwell.communityos.org/zf/safesearch/search

Disaster Recovery Guides and Resource Library:  https://www.redcross.org/get-help/disaster-relief-and-recovery-services.html

Download the FREE American Red Cross mobile app at Apple App Store or Google Play for updates and emergency information

Find the Red Cross Location nearest to you:  https://www.redcross.org/find-your-local-chapter.html

North Carolina Department of Public Safetyhttps://www.ncdps.gov/news/press-releases/2018/09/18/fema-finding-assistance-after-hurricane-florence

CDC: Centers for Disease Control and Prevention:

Flood safety tips:  https://www.cdc.gov/features/flood-safety/index.html

Flood damage cleanup: https://www.cdc.gov/disasters/cleanup/facts.html

Mold cleanup guide: https://www.cdc.gov/mold/cleanup-guide.html

OSHA:                                                   Generator safety tips:  https://www.osha.gov/OshDoc/data_Hurricane_Facts/portable_generator_safety.pdf

*Remember: Your local Police and Fire Department can assist in emergency situations and will have contact information for local flood recovery resources

Hidden Cost of “Rent to Own” and “0% Financing” Purchases

The allure of a shiny car or a beautifully furnished home can make the low monthly payment options of “Rent to Own” and “0% Financing” appear to be an affordable, quick and easy purchase decision.   Here is what you need to know about purchase plans:

  • Rent to Own purchase plans allow consumers to “purchase” items and pay for them over long periods of time. The rental payment periods often extend past the useful life of the item.  Buyers can find themselves burdened with rental payments on an item that has little value or may no longer perform the function for which it was purchased.   “Rent to Own” payment plans are often offered on overpriced products.  This repayment plan results in an expensive purchase for the buyer and a large profit for the financing company.
  • 0% Financing purchase plans allow consumers to buy now and pay later without incurring interest charges.  For the consumer, the purchase now and pay later option can be very tempting.  Unfortunately, many individuals are not able to adhere to the rigorous repayment schedule set forth in the purchase contract.  The business is playing the “odds” that the buyer will not always make the monthly payment on time or payoff the account before the 0% financing period expires.    Suddenly the buyer’s great “deal” on the purchase became an expensive purchase.

These financing options combined with high pressure sales tactics may influence buyers to purchase items that they would not otherwise be able to afford.  Unexpected life events can quickly change a buyers’ financial situation turning that low monthly payment into a crippling financial burden that can create painful budgeting and financial distress for years to come.

For more information read these articles….

Rent to Ownhttp://www.ncdoj.gov/Consumer/Purchases-and-Contracts/Rent-to-Own.aspx

0% Financing:   https://www.nbcnews.com/business/consumer/when-buy-now-pay-later-ends-costing-you-more-much-n690256

Car Lease Informationhttps://www.consumer.ftc.gov/articles/0056-financing-or-leasing-car

In our Bankruptcy Law practice, we help families and individuals suffering emotional and financial distress due to purchase repayment programs.  If you are financially struggling to make ends meet, the Attorneys at Mills Law can offer options for financial relief.    

Call Mills Law today to schedule your FREE consumer debt consultation (919)934-7235.

Bankruptcy gives many people the opportunity for a financial fresh start.   When you work with us, we review your financial situation, look at the options that are available and determine the course of action that best addresses your financial situation.  For many people that is filing Chapter 7, for others it may be Chapter 13 and finally some people are not well served by the bankruptcy process.

After your free initial consultation you will be required to take the means test.  The Means Test is a tool that the Bankruptcy court uses to determine if you qualify to file Chapter 7 Bankruptcy.   This test uses a complex formula to compare your income, expenses and family size to the median income of similar North Carolina households.

For income levels below state median you will qualify for Chapter 7.  Even if your income is above the state median income you may still qualify for Chapter 7 after a detailed analysis of your financial situation.  For people with income above the state median income Chapter 13 may be an option to provide considerable debt relief.

Call our office to schedule your free Consumer Bankruptcy consultation.

David F. Mills of Mills Law Firm recently spoke on “Current Issues in Agriculture” at the Eastern Bankruptcy Institute’s (EBI) 2017 Seminar in Myrtle Beach, South Carolina. 

The EBI provides continuing legal education for attorneys and paralegals, and provides information and resources on the current state of the law in the bankruptcy and business law fields. 

Mills represents clients in a wide range of bankruptcy matters, including assisting North Carolina farmers with Chapter 12 bankruptcy and related claims.  In addition to his bankruptcy practice, Mills serves as head of the Stubbs Bankruptcy Clinic at Campbell Law School in Raleigh, North Carolina.

When preparing for you free consultation with Mr. Mills, please bring the following documents to help us better understand your picture. If you can’t find all of these items, don’t let that discourage you from coming in. Often we can provide guidance on where this information can be obtained:

  • The most recent bill or statement from each creditor
  • All letters from collection agencies or lawyers
  • Any papers relating to a lawsuit
  • The past 6 months of paystubs
  • The past 2 years of tax returns
  • State ID (such as a driver’s license) and your Social Security card
  • A list of real estate and automobiles you own

Although this is not a complete list of what’s needed should you choose to pursue bankruptcy, it serves as a starting place to help us make an initial analysis of how we can provide the help you need.

Three major benefits come from bankruptcy. The first is the automatic stay, a federal court order that takes effect as soon as your bankruptcy case is filed. It prohibits your creditors (the people you owe money to) from calling or harassing you, suing you, repossessing anything or foreclosing on your home, or any other actions to collect a debt from you. They have to leave you alone.

The second benefit is the ability to claim exemptions. Exemptions represent certain types of property you can keep even though you’ve filed bankruptcy. These exemptions, in most cases, cover all the assets you own, meaning that in most cases you won’t lose any assets.

The third benefit is the discharge itself—the forgiveness of debt that bankruptcy provides to honest debtors—those that fully, accurately, and honestly disclose everything they own and everything they owe to the Bankruptcy Court.

Although these are the Big Three benefits that come from bankruptcy, there are many others—peace of mind, the ability to sleep at night, improvement of credit scores, the freedom to answer the telephone without fear that it’s another debt collector. Other, more technical benefits may also be obtained from a bankruptcy filing, like voiding certain kinds of judgments and liens against your property, and Mills Law knows how to use them to obtain the fresh start you need.

A bankruptcy discharge gets rid of most typical debts, including:

  • Credit card bills
  • Medical bills
  • Personal loans
  • Some taxes
  • Lawsuits
  • Business debt
  • Deficiency claims (debts left over after repossession or sale of a car, home, or other property)

Occasions also exist when bankruptcy will allow you to reduce the amount you owe on your cars and other personal property.

This is not a complete list. We can help identify those debts that will be extinguished by a bankruptcy discharge.

Bankruptcy will not get rid of all types of debt.  These debts are referred to as non-dischargeable debts because you will continue to owe them after your bankruptcy case is over.

Some debts that will survive the bankruptcy include:

  • Most taxes
  • Most student loans
  • Child support and alimony
  • Debts arising from fraud or shortly before you file bankruptcy

This is not a complete list. We will help identify which debts may be forgiven, and those that will remain, based on your personal case.


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